The new income tax regime in India (default since AY 2024-25) offers lower slab rates with reduced deductions — only Standard Deduction (₹75,000), employer NPS, and a few others apply.
The new tax regime under Section 115BAC of the Income Tax Act, 1961 is a simplified personal income tax structure offering lower slab rates in exchange for foregoing most exemptions and deductions. Introduced in Budget 2020 and made the default regime from AY 2024-25 (FY 2023-24), the new regime now applies automatically to every individual taxpayer unless they specifically opt for the old regime. It was further enhanced in Budget 2024 with a higher standard deduction (₹75,000) and revised slabs, making it the more attractive choice for a growing share of salaried Indians — particularly those without significant rent, home loans or 80C investments.
The Budget 2024 slabs for the new regime, applicable for FY 2025-26, are:
| Income Slab (₹) | Tax Rate |
|---|---|
| 0 — 3,00,000 | Nil |
| 3,00,001 — 7,00,000 | 5% |
| 7,00,001 — 10,00,000 | 10% |
| 10,00,001 — 12,00,000 | 15% |
| 12,00,001 — 15,00,000 | 20% |
| Above 15,00,000 | 30% |
In addition:
The standard deduction under Section 16(ia) for new-regime taxpayers was raised in Budget 2024 from ₹50,000 to ₹75,000 with effect from FY 2024-25. It continues at ₹75,000 for FY 2025-26. Combined with the ₹7 lakh rebate, an employee with gross salary up to ₹7,75,000 effectively pays zero tax under the new regime.
The new regime is far more restrictive than the old regime, but a small set of provisions still apply. The most relevant for salaried employees are:
| Section | Allowed under New Regime? |
|---|---|
| 16(ia) Standard Deduction (₹75,000) | Yes |
| 16(iii) Professional Tax | Yes |
| 80CCD(2) Employer NPS contribution | Yes |
| 80CCH Agniveer Corpus Fund | Yes |
| 10(10) Gratuity exemption | Yes |
| 10(10AA) Leave encashment exemption (₹25 lakh cap) | Yes |
| 10(10A) Commutation of pension | Yes |
| Conveyance for performing official duties | Yes |
| Transport allowance for divyang / disabled employees | Yes |
| Daily allowance for tour / transfer | Yes |
| 57(iia) Family pension deduction (₹25,000) | Yes |
The most consequential of these is Section 80CCD(2) — the employer’s contribution to NPS — which can be up to 14% of basic salary for both private-sector and government employees from FY 2025-26 (raised from 10% in Budget 2024). For a private-sector employee with basic salary of ₹10 lakh, the employer can route up to ₹1,40,000 to NPS as a 100% deductible employer contribution, with no impact on the employee’s monthly take-home.
The following are explicitly not allowed under the new regime — most of the headline tax-saving provisions of the old regime:
For a let-out property, the home loan interest deduction is still allowed even under the new regime — but the loss from house property cannot be set off against other income, only carried forward.
The new regime usually produces a lower tax bill for employees who tick most of the following:
| Component | Old Regime | New Regime |
|---|---|---|
| Gross salary | 10,00,000 | 10,00,000 |
| Standard Deduction | 50,000 | 75,000 |
| Section 80C / 80D / HRA (assumed used) | 1,75,000 | — |
| Taxable income | 7,75,000 | 9,25,000 |
| Tax before cess | 67,500 | 47,500 |
| Cess @ 4% | 2,700 | 1,900 |
| Total tax | 70,200 | 49,400 |
| Component | Old Regime | New Regime |
|---|---|---|
| Gross salary | 15,00,000 | 15,00,000 |
| Total exemptions + deductions | 5,17,500 | 75,000 |
| Taxable income | 9,82,500 | 14,25,000 |
| Tax before cess | 1,09,000 | 1,40,000 |
| Cess @ 4% | 4,360 | 5,600 |
| Total tax | 1,13,360 | 1,45,600 |
| Component | Old Regime | New Regime |
|---|---|---|
| Gross salary | 25,00,000 | 25,00,000 |
| Total exemptions + deductions | 2,00,000 | 75,000 |
| Taxable income | 23,00,000 | 24,25,000 |
| Tax before cess | 4,72,500 | 4,12,500 |
| Cess @ 4% | 18,900 | 16,500 |
| Total tax | 4,91,400 | 4,29,000 |
The break-even point shifts with the level of available deductions — broadly, salaried employees claiming more than ~₹3.75 lakh in deductions tend to prefer the old regime, while those with less typically benefit from the new.
From AY 2024-25 onwards the new regime is the default. A taxpayer who does nothing — does not declare any preference, does not file a Form 10-IEA — is automatically treated under new regime. The old regime is opt-in only:
Because of the Section 87A rebate, a taxpayer with taxable income of exactly ₹7,00,000 pays zero tax, but at ₹7,00,001 the rebate disappears and tax of ₹25,000+ kicks in on the small marginal rupee. To prevent this cliff, the new regime provides marginal relief — the tax payable on income just above ₹7 lakh cannot exceed the amount by which income exceeds ₹7 lakh. So a taxpayer at ₹7,10,000 pays a maximum of ₹10,000 in tax, not the full slab amount. Marginal relief tapers off and stops applying once income crosses approximately ₹7,27,000.
Omnivoo runs old- vs new-regime simulations for every employee at onboarding and during the annual declaration window, recommends the lower-tax option, and applies it automatically to monthly TDS. The platform also models the employer’s NPS contribution and other employer-side benefits that remain valuable under the new regime, so finance teams don’t have to manually rebuild salary structures every time a regime change is requested.
CTC is the total annual expenditure an employer incurs on an employee, including salary, allowances, benefits, and statutory contributions.
Form 16 is an annual TDS certificate issued by an employer to each employee, summarizing salary paid and income tax deducted during the financial year.
TDS is the income tax an employer withholds from an employee's salary each month and deposits with the government on their behalf.
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